CURRENCIES: Pound Slides To 31-year Low As Political Vacuum Roils U.K.
June 27 2016 - 2:31PM
Dow Jones News
By Joseph Adinolfi and Sara Sjolin, MarketWatch
China's yuan fixing sees biggest one-day drop since a
devaluation in August
The British pound fell to its weakest level since the mid-1980s
on Monday as political turmoil heightened anxieties about the
U.K.'s historic vote to leave the European Union, weighing on
European currencies and stocks.
Sterling slumped to $1.3197 late Monday in New York, its weakest
level since 1985, compared with $1.3684 late Friday in New York.
The FTSE 100 fell 2.6% to 5,982.20.
The U.K. is facing a leadership vacuum, with the ruling
Conservative Party debating who will succeed David Cameron as prime
minister following his resignation Friday.
The opposition Labour Party faced its own leadership challenge
after 12 members of leader Jeremy Corbyn's shadow cabinet
resigned.
"Sterling's vulnerability to political uncertainty is enhanced
by the UK's sizable 5.2% of GDP current account deficit. Typically
the UK's success in winning inward investment offers the pound
solid support despite the gaping current account imbalance," Jane
Foley, senior currency strategist at Rabobank. "However, one of the
many unknowns currently is how these flows will be impacted going
forward."
Meanwhile, the euro and a host of other European
currencies--including the Norwegian krone, Swedish krona, Hungarian
forint and Polish zloty--all recorded sharp declines for a second
straight day as investors worried about possible economic contagion
spreading through Europe.
"The weakest currencies are a bunch of European currencies,"
said Kit Juckes, chief currency strategist at Société Générale.
"The strong places are the places that have very little to do with
this."
Developing-market currencies in Europe were hit particularly
hard, with the dollar gaining 1% to buy 4.05 Polish zloty late
Monday, compared with 4.00 late Friday. The dollar rose 1.2%
against the Hungarian forint , buying 289 forint late Monday,
compared with 286 forint late Friday.
Read: British pound could hit history-making dollar parity by
end of 2016
(http://www.marketwatch.com/story/british-pound-could-hit-history-making-dollar-parity-by-end-of-2016-2016-06-27)
The shared currency traded at $1.1015 late Monday, compared with
$1.1118 late Friday.
British Chancellor of the Exchequer George Osborne issued a
statement
(http://www.marketwatch.com/story/osborne-says-uk-in-position-of-strength-as-he-tries-to-reassure-markets-2016-06-27)
meant to reassure financial markets an hour before the British
markets opened.
"The Treasury, the Bank of England, and the Financial Conduct
Authority have spent the last few months putting in place robust
contingency plans for the immediate financial aftermath in the
event of this result," said Osborne.
The comments briefly helped support the pound, with the U.K.
currency rising to a session high of $1.3450, but it quickly moved
lower.
Yuan falls, yen gains
The dollar rose to its highest level against the Chinese yuan in
more than five years, buying 6.6511 yuan in recent trade, compared
with 6.62 yuan late Friday, after the biggest one-day depreciation
of the currency's daily fixing
(http://www.marketwatch.com/story/china-eyes-yuan-stability-as-brexit-shakes-up-plan-2016-06-27)
since last year's shock devaluation in August.
The currencies of other developing-market currencies in Asia
followed the yuan lower. The dollar rose to to 1,180 Korean won,
its strongest level since early June, compared with 1,171.95
Friday.
As the global flight to safety that began late Thursday
continued, the Japanese yen, a popular haven during periods of
market turmoil, rose to Yen101.96 against the dollar late Monday,
after touching it's strongest level since late 2013 earlier in the
session. By comparison, one dollar bought Yen102.19 late
Friday.
Read: Japan emerges as key victim in fallout from Brexit
(http://www.marketwatch.com/story/japan-emerges-as-key-victim-in-fallout-from-brexit-2016-06-27)
(END) Dow Jones Newswires
June 27, 2016 15:16 ET (19:16 GMT)
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